New Zealand

The US-China trade conflict is developing into a ‘cold’ war for global economic supremacy and could result in New Zealand being forced to pick a side between the two global superpowers, according to Rabobank’s Head of Financial Markets research for Asia-Pacific Michael Every.

And with this threat on the horizon, Mr Every says New Zealand’s agricultural sector should aim to reduce its reliance on individual trade partners and place an increased focus on diversification of its export markets.

Visiting New Zealand last week to speak at a number of Rabobank events in both North and South islands, Mr Every said he expected US-China relations to deteriorate further.

“The clash between the US and China is not going away, it’s not an aberration, it’s going to get worse,” he said.

“China and the US both want to be number one, they both want to be sitting in the driving seat for who gets to set the rules for the global economy and who everyone looks to as the global leader and there’s only room for one in that chair.”

Mr Every said increasing tensions could produce a scenario where New Zealand is forced to choose sides.

“China is aggressively pursuing trade expansion and there may come a time when a gun is put to New Zealand’s forehead and you’ll be asked are you with us, or are you with the US,” he said.

“If you answer the US, the Chinese could slam the door shut.”

Mr Every said China’s growing global influence and use of policies inconsistent with free trade had provoked the US to retaliate with tariffs on Chinese imports and other as anti-China trade policy.

“Last month the US concluded a new trade deal with Canada and Mexico, which requires them to notify the US before entering into any agreements with non-market economies such as China. This was economic warfare dressed up as trade and the type of move the US may try to employ in the Asia-Pacific region.” he said.

In March this year, 11 nations, including New Zealand, signed up to the Trans Pacific Partnership (TPP).

The TPP was originally intended to include the US, but it withdrew from negotiations in 2017. In January, however, US President Donald Trump signalled he could push harder for “substantially better" Pacific trade deal for the US.

“At some point the US is going to come crashing back into the Asia-Pacific region because it’s so geopolitically important,” Mr Every said. “And the message may well be that the price of protecting New Zealand is a new trade deal on their terms and which forbids, or greatly restricts, dealing with China.”

An ultimatum from either of the US or China would place New Zealand in a perilous position given its significant trade ties with both countries.

New Zealand’s agricultural exports to China have grown rapidly in recent years and China is now New Zealand’s most important trading partner. New Zealand also has a significant trade relationship with the US as well as historically strong diplomatic and cultural ties.

Mr Every said New Zealand farmers and exporters should look to diversify offshore markets, before any concessions are demanded by the US or China.

“New Zealand’s agricultural sector should be looking to further develop links into new growth markets like Japan, Indonesia and India,” he said. “While this may take a lot more effort in the short-term, it will leave agricultural exporters in a better position should the US or China start making demands down the track."

“New Zealand needs to look at it as an opportunity, rather than a threat, and ask ‘what brand can we build for agriculture that allows us to thrive’, because trade protectionism won’t go away.”

Mr Every said with increased market volatility likely, New Zealand farmers should also be taking a close look at their balance sheets.

“Farmers would be wise to shore up their balance sheets so they are robust enough to cope with a scenario where one of New Zealand’s major trading partners withdraws from the market,” he said.

Both New Zealand and Australia want to attract tourist fruit pickers [‘backpackers’] and seasonal workers from around the Pacific. However, latterly the numbers are becoming somewhat skewered. For every 1,000 backpackers picking fruit and vegetables in New Zealand, there are about 3,000 seasonal workers from the Pacific. In Australia, the mix is different: for every 1,000 backpackers there are only about 250 Pacific seasonal workers.

The Australian outcome is what the research literature predicts: employers preferring the more flexible, much less regulated backpacker. It’s less hassle, and as recent media and academic research has shown, easier to get away with underpaying backpackers, where no government approval or reporting is required, than with seasonal workers, where stringent approval and reporting requirements are imposed.

How then to explain New Zealand’s contrary performance? There seem to be five factors which explain why New Zealand’s 2007 seasonal worker scheme (called the RSE or Recognised Seasonal Employer) has been much more popular than Australia’s 2009 Seasonal Worker Program (SWP).

First, New Zealand’s horticultural sector has a much stronger export orientation. As a result, the sector is more focused on quality and compliance, as stories of worker exploitation risk the loss of export markets. In contrast, Australian farmers are producing mainly for the domestic market, with little external scrutiny of workplace conditions and employee rights. They are focused primarily on costs rather than reputation.

Second, collective action is easier in New Zealand. New Zealand’s horticultural sector is much better organised than in Australia, and has a single peak body. It played a leading role in developing the RSE, and employs someone to promote it.

Third, the costs of regulatory compliance are also lower in New Zealand. Australia’s minimum wage is significantly higher than New Zealand’s, which creates a stronger incentive to avoid it.

Australia also has a weaker enforcement regime, making it less likely that you’ll be caught if you cheat. This is again due to the tyranny of size, but also because Australia has put less effort into developing a licensing regime for labour hire companies. This situation is now changing, which explains the growth of the SWP in recent years (as noted below).

Fourth, while Australia’s and New Zealand’s backpacker and seasonal worker schemes are very similar, there are subtle differences in their design, history and implementation, which have made a difference.

New Zealand introduced the RSE in 2007. At the time, Australia wasn’t prepared to follow suit. Instead, in response to farmers’ complaints about labour shortages, it introduced the second-year backpacker visa to funnel backpackers into agriculture in their first year with the offer of a second-year visa.

Finally, there is the simple fact that Australia simply attracts far more backpackers than New Zealand, making the potential pool of backpacker farm labour that much larger. In the 2017-18 financial year, Australia had 210,000 backpackers while New Zealand had only 70,000.

Joining five other nations, Australia’s commitment has triggered a 60-day countdown to tariff reductionsOn 31 October, Australia became the sixth country to ratify its position in the Trans-Pacific Partnership (TPP-11, and also known as the CPTPP).

Joining Canada, Japan, Mexico, New Zealand, and Singapore in the first group to ratify the agreement means a majority sign-on triggers a 60-day countdown to the first round of tariff cuts.

The first tariff cuts under the agreement will enter into force on 30 December 2018. A second reduction will occur three days later on 1 January 2019.

For Australia, tariff reductions to Mexico are expected to benefit the horticulture sector, and the broader agriculture industry will see improved access.

Brunei, Chile, Malaysia, Peru, and Vietnam are also part of the agreement, but are yet to ratify their positions.

"CPTPP brings Japan, Canada and Mexico into a trade deal with New Zealand for the first time. These countries have large markets that will now become progressively open to New Zealand goods and services, improving New Zealand’s trade earnings,” she said.

"Other country members of CPTPP will now also offer terms of trade more favourable to New Zealand exports.”

The New Zealand government expects items like buttercup squash into Japan to become tariff-free; onions to Japan to have tariffs removed within the next six years; and tariffs in other countries to be eliminated on a number of items like cherries, radish, carrot seed, kiwifruit, and avocado.

Horticulture New Zealand is thrilled that mandatory Country of Origin labelling for fruit and vegetables got a step closer today, with the second reading of the Consumers’ Right to Know (Country of Origin of Food) Bill passing in Parliament.

"Our research showed that more than 70 percent of New Zealanders want mandatory Country of Origin Labelling (CoOL) for fruit and vegetables, so it is great to see the Government continuing to listen to consumers by progressing this Bill," Horticulture New Zealand chief executive Mike Chapman says.

"This Bill has been a long time in the making and it underwent significant changes by the Primary Production Select Committee between its first reading and now. Ultimately, the outcome is what our growers want. That is, consumers can choose what to buy with full knowledge of where their fresh fruit and vegetables come from," Chapman says.

"Consumers want to be able to make choices based on their own beliefs and values. They may want to support local businesses, buy what is in season and grown locally, help keep and create jobs in their own area, or for that matter, buy products from other countries known for being the best at growing particular produce.

Taxpayers have so far spent $6 million to defend the kiwifruit claim case, and the Appeal Court hearing has yet to start. This will make it the most expensive primary sector court case on record.

In June, the 212 growers who joined a class action won a High Court case which found the Ministry for Primary Industries was negligent in allowing the disease Psa into the country in 2010. They are claiming $450m compensation.

MPI said it was taking the case to appeal because it sought to "clarify the scope for government regulators to be sued in negligence". It added the High Court finding had the potential to "significantly impact on the Ministry's biosecurity operations".

The claimants have filed a cross-appeal on the grounds that packer Seeka was owed a duty of care, contrary to the High Court finding, and that MPI was negligent in failing to inspect a shipment of banned kiwifruit plant material, infected with Psa, when it arrived from China.

The 12-week High Court case was funded by litigation funder the LPF Group, chaired by former Supreme Court judge Bill Wilson. As a funder of the class action, LPF Group is to receive a percentage of the compensation granted.

In response to an Official Information request, the Ministry for Primary Industries said the $6m figure did not include internal staffing costs, and it would not be possible to provide an exact figure for the total time spent by staff. The costs for consultants and experts paid directly by MPI was $400,000.

Government changes to pre-clearance inspections are having harsh effects on Australian importers.

The Overseas Pre-clearance Inspection (OPI) scheme, offered through Australia’s Department of Agriculture and Water Resources (DAWR) since 2001, is about to disappear.

The government department made a decision to eliminate the program in 2016 meaning importers will have to inspect and clear fruit for arrival onshore in Australia.

Previously, Australia appointed inspectors who travel to selected ports overseas to pre-clear produce as it meets phytosanitary approvals. Now, the number of inspectors is being reduced and moved back home.

A spokesperson from the DAWR told Asiafruit that the program is being phased out because on-arrival inspection provides greater opportunities for the DAWR to drive compliance and better allocate resources according to biosecurity risk.

Industry representatives are not convinced.

A member of the Australian Horticultural Exporters and Importers Association (AHEIA) told Asiafruit that wait times for onshore clearance are sitting at around 7 or 8 days, adding an extra week to their pre-order schedule.

“The retailers don’t want to hear ‘I’m sorry but we can’t get an inspection for your program,’” they said.

Industry sources told Asiafruit that Australia’s import sector is not only concerned about their business and relationships, but the flow-on effect for export deals.

“We know that in the past several of our neighbours have used non-phytosanitary issues to restrict fruit imports,” said Neil Barker, CEO at BGP International. “When they see how effective the DAWR protectionist policy has been I have no doubt they will consider adopting the policy. If an Australian grape shipment to Jakarta airport regularly spent seven days in the cargo terminal waiting for an inspection my guess is that the trade would stop.”

Dominic Jenkin, CEO of the AHEIA explained that when inspectors are placed overseas they’re able to approve produce more efficiently as multiple orders might be stationed in a single location at a major port; last year the programme operated across 75,000 tonnes of fresh fruit imports from New Zealand and the US.

The program was offered to a handful of countries, which has dwindled over the years. Currently availability is only for the USA and New Zealand on selected fruit and veg.

The DAWR said that the removal of OPI does not impact on the number of inspectors available to the department.

However, in Australia, inspectors are having to travel much longer distances between warehouses to inspect and approve. Because of the delays, importers are also having to absorb the cost and losses from shortened shelf life and storage fees to hold sealed containers while they wait for a scheduled inspector.

To curb the problem, the DAWR decided to implement a Compliance-Based Inspection (CBI) scheme last year, which was piloted during the New Zealand avocado season.

The CBI scheme means that if a product reaches a certain number of approved inspections (for avocados it’s five in a row), they will then move to a reduced inspection rate (again for avocados, inspections will reduce to one in four shipments).

“The new scheme was intended to reward importers who could achieve a good compliance history with decreased inspection rates and faster entry. To date, no importers have achieved these reduced inspection rates,” New Zealand Avocados told Asiafruit in a statement.

“An overriding reason is the difficulty of accurately identifying often globally distributed organisms (and their eggs), down to a taxonomic level to confirm they are not of quarantine concern,” they said.

The same issue appeared in 2016 when lemons and limes from the US were subject to the trial and saw backlogs of up to ten days.

While experiencing setbacks in gaining approval, a lot of the annoyance over changes stems from the where funding of the inspection program comes from.

“The frustrating thing is that it’s industry funded. So, most of the time the limitation is cost for government processes, but this is definitely not a case of that. The industry has never said ‘we’re not willing to pay for this,’” said the anonymous AHEIA member.

The DAWR sad it’s working closely with industry and trading partners to optimise compliance and minimise any disruption, while facilitating safe trade.

The New Zealand kiwifruit harvest is commencing today at produce company, Seeka. It has just completed its Nashi and Packham pear harvests in Australia and avocado and kiwiberry harvests in New Zealand.

2018 has seen unsettled weather in New Zealand already with ex-tropical cyclone Gita having impacted in New Zealand's South Island and it was feared that the remnants of tropical cyclone Hola may have hit the Te Puke area on Monday, but the storm drifted to the east of the country. MetService said it would bring a short spell of wind, rain and larger swells, with possible severe weather in places. Now there is a new Cyclone Linda brewing in the Coral Sea in New Caledonia.

Michael Franks said that Seeka are ready to go with the new kiwifruit harvest. "We are at the end of a very good kiwiberry harvest, and having completed Seeka’s most successful avocado season ever. In the kiwiberry space around 1605 bins have been processed across Seeka’s new kiwiberry processing plant – a converted cherry grader. The machine has commissioned well, and provided Seeka and its growers with 5 times the capacity to pack. Its delivered a significantly better risk profile for our growers, particularly with the unsettled weather pattern. This is well up on last year’s approximate 1297 bins processed at Seeka. The first kiwifruit are now ready for harvest. The weather during the kiwifruit growing season has been very unsettled with less than ideal amounts of sunshine punctuated with heavy rain. The result is a very large size profile. Dry matters are comparatively low and we are closely monitoring the fruit to get it harvested when the criteria is achieved."

Last year Hayward [green] yields were low with big sizes, this season's yields are expected to be more normal and Seeka are expecting to pack between 29 million and 30 million trays, compared to last year's 25.5 million.

Seeka is currently recruiting for the season but there doesn't seem to be the usual numbers of backpackers registering as in previous years. This is a new phenomenon in New Zealand and in the Hawkes Bay, the apple packers are at crisis levels. "The labour situation is always a bit confused at this time of the year," according to Franks. "People sign up to three or four packhouses in the region and will go to the place that starts packing first, so it is hard to get a handle on the overall situation right now. The numbers seem ok but we are unsure about how it will pan out. Seeka does have innovative programs underway with Government departments to encourage out of region New Zealanders to work at Seeka including subsidised transport and specialist training. We also have our overseas workforces coming inwhich we use to complement the local kiwi workers."

Seeka have two packhouses with Near-Infrared technology in the lines which scans fruit to measure dry matter levels. The gold kiwifruit must reach a certain threshold to be classed as Zespri class I fruit for export. The technology tries to segregate the specific sized fruit to ensure that the dry matter levels are sufficient to meet customer's demands. Once packed the fruit is rechecked to ensure it is at the level.

"Its tricky technology to employ, and as the fruit matures and the harvest continues the cameras and technology needs recalibrated. It is time consuming at a time when we are very busy. It is not possible to take the machine down for a whole day for recalibration. The whole process is expensive to the point where its economic benefits are marginal, but we do it because the market and growers expect it of us," said Franks.

"We anticipate a better crop volumes this season, up 4.5million trays on last year. Hayward will be better so we are expecting around 18 million conventional and organic trays and also a lift in the Sungold fruit, but we are conscious that it does have lower dry matter," stated Franks.

Meanwhile at Seeka Australia the financial performance last year was up significantly, mainly due to a very good kiwifruit harvest, but according to Franks, there is still room to improve. The focus in on production to get all varieties performing at their optimum. Last year the Nashi volume was down but they are predicting a bumper crop this year across all varieties. Seeka Australia has experienced unprecedented export demand for its kiwifruit. The orchards, while in a difficult growing environment, produce fruit of excellent taste and quality. The combination of high temperatures, high sunlight hours and strict quality standards has delivered an excellent kiwifruit, according to Franks. Export volumes are expected to surge by 60% with Seeka continuing to market through its dedicated European customers.

Seeka continues to invest; it is developing 60 hectares of new kiwifruit orchards as well as new pear varieties. The company has deployed new high-brix high yielding pears focused on its key Australian customers. These new exciting pears are intended to meet growing market demand and replace commodity pears.

MP Gareth Hughes (Green party) is confident his country of origin food labelling Bill will pass into law this year, to the benefit of Gisborne’s horticultural sector.

The Consumers’ Right to Know (Country of Origin of Food) Bill, which requires country of origin labelling on all fruit and vegetables and other single component foods sold in New Zealand, passed its first reading unanimously last year. Hughes was delighted with the cross party support.

About 50 percent of New Zealand’s major trading partners -including Australia- required country of origin labelling for food, Hughes said, while New Zealand requires it for imported clothing and footwear, but not food.

“Some 60 percent of pork and 96 percent of shrimp and prawns are imported with very little information provided. Horticulture New Zealand estimates 90 percent of the countries that buy our horticultural produce require country of origin labelling. Many New Zealanders are wondering: if it’s good enough for Aussies and Brits, why isn’t it good enough for us?”

Gisborneherald.co.nz further quoted Hughes as saying: “Consumer New Zealand found 72 percent of Kiwis support labelling of fruit and vegetables and 65 percent of consumers looked for labelling information on their food products. Consumers want to know where there food comes from, how it was grown, how animals were raised or about their labour practises. It’s about providing more information so consumers can exercise their power. Horticulture New Zealand also supported country of origin food labelling."

Mr Hughes said the Bill could have a significant impact on the Gisborne region, given the significant role horticulture played in the local economy.

“This project has been funded by the Australian Trade Commission as a part of the Asian Business Engagement (ABE) grant program and is supported by Trade and Investment Queensland and the Department of Agriculture and Fisheries Queensland.”